Wealth Fluctuations and Risk Preferences: Evidence from U.S. Investor Portfolios

85 Pages Posted: 18 Aug 2020 Last revised: 22 Feb 2022

See all articles by Maarten Meeuwis

Maarten Meeuwis

Washington University in St. Louis - John M. Olin Business School

Date Written: July 15, 2020

Abstract

Using data on the portfolios and income of millions of U.S. retirement investors, I find that positive and persistent shocks to income lead to a significant increase in the portfolio equity share, while increases in financial wealth due to realized returns lead to a small decline. The positive net effect in the data is evidence for risk aversion that decreases in total wealth. I estimate a portfolio choice model that matches the reduced-form estimates with a significant degree of non-homotheticity in risk preferences. Decreasing relative risk aversion preferences significantly increase the share of wealth at the top of the distribution.

Keywords: Household Finance, Portfolio Choice, Risk Preferences, Life-Cycle Model

JEL Classification: G11, D14, D31, E21

Suggested Citation

Meeuwis, Maarten, Wealth Fluctuations and Risk Preferences: Evidence from U.S. Investor Portfolios (July 15, 2020). Available at SSRN: https://ssrn.com/abstract=3653324 or http://dx.doi.org/10.2139/ssrn.3653324

Maarten Meeuwis (Contact Author)

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
117
Abstract Views
516
rank
330,430
PlumX Metrics